Dfs Furniture Stock

Good morning, everyone, and welcome to the DFS Furniture plc Full Year Results Presentation for Financial Year 2026. I'm pleased to be here today alongside our new CFO, Dominique Highfield, to take you through our presentation.

So turning to the agenda for today's session. I will summarize the highlights of the year and then hand over to Dominique, who will share an overview of the financials. From there, I will outline our updated strategy and the capabilities that underpin our competitive advantages as a group. And then I'll also provide an update on our outlook for the full year ahead. Finally, Dominique and I will take questions from the analysts that are here with us in the room.

So turning to FY '26. We delivered a strong performance in FY '26 with our strategy delivering clear tangible results. Despite a subdued market backdrop, we generated revenue growth of 2.6% and met our strategic goal of 58% gross margin. The commercial discipline flowed to our bottom line. We delivered on our upgraded guidance with underlying profit before tax and brand amortization of circa GBP 45 million, up GBP 15 million year-on-year. Importantly, this operational momentum translated directly into cash and balance sheet strength. We generated GBP 40 million of free cash flow, allowing us to pay down bank debt and reduce our leverage ratio to 0.9x, down from 1.4x at the end of FY '25. Now this performance and capital discipline has given the Board confidence to reintroduce our ordinary dividend.

Turning to our operational health. The business is performing at record levels. Customer satisfaction has hit new highs with DFS customer NPS scores up 7% year-on-year. This is powered directly by our exceptional teams. Guided by our new DFS Group purpose and values, colleague engagement scores have increased 19% year-on-year. Looking further ahead to growth opportunities, we are focused on what we can control from extending our market leadership in core upholstery, which is currently at record levels of over 40% to unlocking further expansion in the home market and finally, monetizing our platforms.

Successful trial investments over the past year have validated our strategy and reinforced our confidence levels in our medium-term targets. In addition, when the upholstery market starts to normalize, our operational gearing will result in a high profit drop-through and strong cash flow generation, and our sights are fixed on our medium-term targets of GBP 1.4 billion of revenue and 8% PBT margin. So in summary, our business is in great shape. We're well positioned. We have our scale, an updated growth strategy, and it's paving the way for our medium-term potential to be unlocked.

With that, I'll now hand over to Dominique to walk us through the financials.

Thanks, Tim. Before I get into the results, a brief reflection of my first 5 months. I joined DFS because I love customer-focused retailers because of the culture Tim and the team have built and because I believe DFS's sit test makes an AI-proof bricks-and-mortar offering. Everything I believed coming in has been confirmed and what's genuinely impressed me since joining is how data-led this relationships-led business actually is with a superb understanding of its customer and real pace on responding to how that customer now searches, whether that's ChatGPT or Google. Having joined 2 months before year-end, I want to start by recognizing Tim and the team's execution behind these results, and I'm delighted to be here today to bring them to life for you.

Turning to our financial results. We see robust P&L progression and strong cash generation. Revenue rose by 2.6% to just under GBP 1.06 billion. Combined with 160 basis point gross margin expansion and continuous cost discipline, underlying PBT increased by GBP 14.7 million to GBP 44.9 million. A key highlight of the financial year is the continued cash performance. We generated substantial free cash flow and reduced bank debt by GBP 38 million to GBP 69 million. Consequently, our bank leverage has fallen significantly to 0.9x, positioning us within our 0.5 to 1x target. I'll unpack the specific drivers over the next few slides.

So let's get on to order intake and revenue together. The group delivered a resilient performance overall. Group order intake was down 1% year-on-year, but slightly ahead of the wider market. Performance was split into 2 distinct halves, a strong first half, plus 2.3% order intake, which led to an upgraded profit guidance in January, followed by a softer second half due to macroeconomic pressures. Despite the slowdown, strong margin and cost control enabled us to deliver upgraded profit guidance. Trading across the period also highlighted a divide in how consumers are spending. Higher-income consumers remained active, while cost of living pressures caused more cautious spending amongst others. And against this backdrop, the DFS brand delivered full year order intake of minus 2% year-on-year.

Our exclusive brand partnerships, however, continue to resonate with consumers in spite of subdued demand, generating positive year-on-year growth. Our home proposition also grew by 10.9% year-on-year, driven by expanding brand partnerships, targeted marketing and increased capacity like the new mezzanine at DFS Stockton. Sofology outperformed the wider market with plus 2.6% order intake growth. This is driven by a more affluent customer base, strategic range refreshes, its first ever sale event and an expansion of our 4-year interest-free credit. Importantly, what this performance across brands shows us is the value to DFS Group of having a multi-brand portfolio.

FY '25 was a tough comparator, having gained substantial market share. So when we step back, our 2-year performance highlights the underlying business strength with 2-year group order intake up 9.1%. Gross sales grew 2.3% year-on-year, outpacing the 1% decline in order intake due to our made-to-order model lag. And revenue growth marginally exceeded gross sales due to lower interest-free credit subsidy costs from downward SONIA trends in the first half. So overall, the group delivered a strong full year order intake performance, building on the significant share gains achieved in the prior year.

Moving on to gross margin. Our gross margin as a percentage of revenue improved by a further 160 basis points year-on-year to 58.1%, marking the group's fourth consecutive year of gross margin progression and achievement of our 58% target. Whilst this waterfall shows the progression of margin rate, it's important to note the increased sales volume generated an incremental GBP 11 million of gross margin year-on-year. Product margins increased 70 basis points and contributed an incremental GBP 12 million. And this is directly supported by our successful consolidation of our buying teams under a single group leadership structure and unlocking efficiencies through supplier rationalization.

We have also achieved productivity gains within our own factories. This is a result of continued cost-conscious culture over the previous few years. Margin tailwinds further aided our rate with freight cost reductions contributing GBP 5 million as container rates normalized and a favorable U.S. dollar exchange rate, providing a GBP 4 million benefit being 0.03 favorable year-on-year. In summary, a strong gross margin performance, which saw us achieve our 58% target.

Turning to operating costs. Underlying operating costs totaled GBP 569 million, an increase of 3%. Volume-related costs such as variable distribution costs and sales commissions rose GBP 3 million, in line with revenue. Statutory inflationary headwinds of GBP 11 million were concentrated in employment costs. We strategically invested into our brands with an extra GBP 7 million of targeted brand marketing, notably supporting Sofology's return to television advertising and expanding our home proposition. We also committed GBP 6 million into growth and technology investments, including our new Sofology Carlisle showroom. These investments were partially self-funded by GBP 4 million of further cost efficiencies and disciplined savings.

Finally, as a result of continued strong cash generation and concentrated capital expenditure, our depreciation and debt charges reduced by GBP 6 million. We expect to reduce interest charges in the future as we continue to reduce our debt levels. So in summary, group cost increases were contained to 3% in spite of inflationary pressures and investment into future growth due to continued debt reduction and strong cost control.

Turning to cash flow. We delivered a cash inflow of GBP 40.3 million, underpinned by a robust EBITDA increase of GBP 5.7 million. We maintained disciplined investment in future growth with capital expenditure of GBP 27.6 million, funding store refurbishments across both retail brands, a new Sofology showroom and the expanding of home mezzanines. Concurrently, lower average net debt reduced interest payments by GBP 4.9 million. We generated a working capital inflow of GBP 10.2 million, driven by longer supplier payment terms and a small year-end timing benefit. And whilst this is lower than the FY '25 inflow of GBP 24.9 million, we benefited in timing there from a strong second half trading ramp-up and FY '26 reflects the continued disciplined management. Reflecting the strength in balance sheet, we were pleased to reintroduce a modest interim dividend of 1 pence per share, a GBP 2.3 million cash outflow in the period. Importantly, cash management substantially reduced closing net debt by GBP 38 million to GBP 69 million, bringing leverage down to 0.9x.

Now I'd like to reiterate our capital allocation framework designed to balance the continued strengthening of our balance sheet with strategic growth investments and sustainable shareholder returns. Our first priority is to maintain a healthy balance sheet. We have made excellent progress here, bringing our leverage ratio down over 2 years from 2.5x down to 0.9x. Debt levels have not only halved over the last 2 years, but now place us within but towards the top end of our 0.5 to 1x target range. Continuing to reduce debt levels remains a key focus. Also a key focus is our second priority, supporting organic growth. We expect our maintenance capital spend to track at approximately 2% of revenue. For FY '27, we anticipate a total CapEx spend of GBP 27 million to GBP 32 million, with growth investment focused strictly on high confidence, high-return strategic projects that underpin our medium-term opportunities, which Tim will shortly talk through.

Finally, with the balance sheet strengthened, the Board is pleased to recommend a final dividend of 2 pence per share, bringing the reinstated full year dividend to 3 pence per share. This importantly reflects our confidence in the business, our focused deleveraging and disciplined investment for long-term growth.

So what do I want you to take out of my presentation today? We did see consumer demand impact order intake in the second half. But importantly, the performance has strengthened slightly heading into FY '27. And when we look internally at the proof points of our results, the group achieved its upgraded guidance while slightly outperforming the market due to our winning customer proposition and strategic focused execution. This combined with gross margin progression and cost discipline, this drove PBT up 49% year-on-year. The upshot of which has meant strong cash generation, meaningful debt reduction and the reinstatement of sustainable shareholder dividends.

Thank you for listening. I'll hand over to Tim.

Thanks, Dominique. Let's turn our attention to strategy and operational review. So the resilient financial results that Dominique just presented are the direct consequence of the strategic progress we've made. And as we look forward, we've taken the opportunity to make some refinements to our strategy, which I wanted to talk you through now. So turning to our updated growth strategy. Everything now begins with our new group purpose, which is furnishing better lives together. This new purpose frames our growth strategy. First, we'll play to win in the core sofa market by protecting our market leadership position and penetrating underserved customer segments and geographies where we still see clear space for growth.

Second, we are building and scaling our home business. While broader home categories represent a total of GBP 5 billion market opportunity, we are initially targeting the GBP 3 billion beds and mattress segment. By leveraging our brand trust, our marketing power and our third-party partnerships, we believe that we can capture more furniture spend and increase customer frequency beyond the longer sofa purchase cycle.

Third, we are monetizing our logistics platform, the Sofa Delivery Company, to serve other smaller furniture retailers as a profitable revenue engine. To successfully deliver across these 3 growth pillars, our business relies on 3 key enablers: our scale and vertical integration, our approach to data, technology and AI, and our unique people and culture. By combining these enablers, we aim to create distinct competitive advantages that unlock sustainable long-term value.

Now before I go through the strategy in more detail, I thought it's worth providing some context as to how we see the market share. Our group market share by value, as shown here on the dark green line at the top of the chart has increased consistently over time to over 40% for the calendar year 2025 as measured by global data. Now we took share mainly from retail park competitors from 2017 to 2022 with a significant increase in '21 as a key competitor went out of business. More recently, we've taken share from across the competitor set. Our retail park competitors, the dotted green line here, have recovered some of their share from 2022 onwards at the expense of home multiples and online pure plays. You can see the share of home multiples have been relatively flat over time with some new entrants emerging and some deprioritizing upholstery.

The share of online pure plays peaked in the COVID pandemic and returned to normalized levels thereafter. And then you can also see finally the independent share reducing, but then it's flatlined from 2022 onwards. I guess the key takeaway here is that whatever the environment that we've been operating in, we've strengthened our market leadership position and are currently now at record levels of over 40%. That's 3x the size of our nearest competitor, and we do see further increases in future.

Now on to market drivers and market size. Our market is heavily impacted by consumer confidence levels. Around 80% of sofa purchases are replacements and consumers need to feel confident to make that big ticket purchase. You can see that correlation on the right-hand chart, where we've plotted consumer confidence against market size back to 2006. Since around 2022, we all know that consumer confidence has been running at relatively low levels as a result of heightened inflation and interest rates, resulting in cost of living pressures as well as the ongoing geopolitical uncertainty. The remaining 20% of purchases are linked to house moves. A buoyant housing market results in more upholstery demand. As you can see on the bottom left chart, property transactions were actually recovering and in growth as interest rates started to reduce from their peak. However, for the last 6 months, interest rates have held flat for some time and housing transactions have been relatively subdued.

Finally, you can see on the right-hand chart, the market value is estimated at GBP 3.1 billion for calendar year 2025. And we've tried to illustrate here the inflation-adjusted market size, which reflects retail price inflation over the last few years, and that indicates that market volumes are still below -- 20% below normalized levels. So the market has a long way to recover. And when it does, given our operational leverage and our market share in our business, the profit opportunity for this group is significant.

So let's consider the medium-term opportunity as we see it, which is a 4- to 5-year time horizon. While we'll obviously navigate through the near-term macro challenges, our future destination remains unchanged. Our strategic building blocks provide a clear visible road map to our medium-term financial targets. Now our confidence in these targets is anchored in the fact that we don't require a full recovery in the upholstery market to achieve them. Our progression to a 6% PBT margin and GBP 70 million of PBT is built entirely on controllable levers.

First, we will drive upholstery volume growth by leveraging our position as the clear market leader to capture further market share. We've seen good performances from recent investments such as the new Sofology Carlisle showroom and the Bolton refurbishment, and we see an opportunity to add at least 10 new Sofology showrooms with limited cannibalization. We also see an opportunity to enhance our Sofology like-for-like estate through further showroom enhancements and refurbishments. We're going to continue to invest in the DFS range expansion and development, including exclusive brands where we see opportunity to serve underrepresented customers and geographies.

Second, we will scale our home proposition, building on the 11% growth achieved this year, capturing non-upholstery spend across bedrooms and living rooms. This provides a GBP 5 billion TAM opportunity with our primary focus being to capture a greater share of the GBP 3 billion beds and mattresses segment. With the foundational infrastructure now all in place, we are well positioned to scale. We've expanded our high-profile exclusive brand partnerships into our home categories, and this continues to differentiate our offer, particularly in the beds and dining areas.

We are confident we can deliver an incremental GBP 100 million of revenue through increasing our physical offer via mezzanine investments in DFS, supplemented by an enhanced online proposition. Now following the success of trial mezzanine investments such as DFS Stockton and Aintree, we see scope to add a further 20-plus mezzanines. Now these costs around GBP 1.6 million of CapEx each, but we've seen an uplift in showroom revenue of circa 25%, paying back in 3 to 3.5 years and delivering an IRR in the range of 25% to 30%. We have 5 of these now and good proof points on which to build a good business case.

Third, we are monetizing our logistics platform, the Sofa Delivery Company, opening up a new business-to-business profit stream with minimal capital investment required. We are currently offering our leading 2-person delivery service to 3 businesses, and we now have the technology and scale to integrate more at scale. Now these growth levers provide the route to an additional GBP 25 million of PBT, at which point we'd be operating at around 6% PBT margin. Delivering this will be supported by the GBP 27 million to GBP 32 million of total capital expenditure that Dominique outlined for FY '27, increasing to around GBP 35 million over the medium term per year to fully fund these opportunities. Finally, as we stated before, the upholstery market volumes are around 20% or more below the long-term average. Now given our current market share and our operating gearing, we now only need 7% of that 20% to recover to achieve our 8% PBT margin and deliver over GBP 100 million of PBT.

Moving on to our key enablers, starting with scale and vertical integration. Scale is a fundamental competitive advantage for the DFS Group. As the clear market leader of the upholstery market, our integrated end-to-end platform gives us structural and commercial advantages across the value chain and underpins our 58% gross margin. The scale secures exclusive supplier relationships, which allows us to bring in highly differentiated and exclusive product ranges to our customers. For example, exclusive brands in DFS now represent 45% of the total brand sales mix, featuring household names like French Connection, Joules, and Ted Baker, and we're really proud to work with them.

We have also recently expanded these partnerships into our growing home category, and we're pleased with the performance we've seen in those brands to date. Our scale also gives us early access to product innovation. We're embedding the very latest technology directly into our furniture to drive higher average order values. And finally, on scale, it enables us to secure products at a relatively favorable cost of goods terms. And this, together with the fact that we run our own factories, and we understand the cost of every element of the sofa underpins our 58% gross margin. Scale in terms of marketing, we've recently teamed up with Craig Revel Horwood for Sofology's 'So Fussy' campaign, and this has helped increase the brand awareness of that brand by 5% year-on-year.

Moving on to data, technology and AI. Now we've always viewed data and technology as critical drivers of our customer propositions and also our operational efficiency. And I'll start with a little bit of how we bring this to life across the customer journey. We inspire our customers with innovative products such as our Cinesound collection, which brings integrated audio and cinema-style comfort directly to your home. That brand is doing fabulously well. In the discover phase, tools like the Bloomreach personalization and augmented reality in-room viewing bridge that gap between the digital and the physical in-store test -- sit test. We also see generative engine optimization as a huge opportunity for our group, given the years of investment and initiatives we've made to improve our websites, our digital marketing and our data. We're already visible on 88% of GEO searches in DFS.

When it comes to transacting, features like our soft credit check capability and complete-at-home ordering where orders can be started in store and completed at home remove friction from the customer journey. And support doesn't end at the point of order. Our AI chatbots and intelligent call routing deliver fast, proactive customer care all the way through to final delivery, helping support our record NPS scores. Now underpinning this entire customer journey are proven AI capabilities. And our philosophy at the DFS Group is to use AI to empower our people, believing ultimately that the human touch remains our ultimate differentiator. We use AI to reduce friction, freeing up our teams to focus on high-value customer interactions. And we're already seeing big wins on that where we are today.

Across logistics, our proprietary Apollo routing engine uses real-time data to optimize final mile schedules for the Sofa Delivery Company, driving a 20% reduction in overtime costs alongside an 18% cut in road miles. In terms of colleague capacity, automated query tools support 17,000 customer tickets every month while cutting admin handling times by 5 minutes per interaction. Looking forward, the accelerating pace of this technology creates massive opportunities as we shift from an AI-assisted to an AI-enabled business. Firstly, around our people. We're upskilling our technology teams, allowing them model-agnostic tools but within a clear governance framework. Second, from the front end of the business, we're using AI tools in both web search, total search and our showrooms to drive that search-to-sale conversion and finally, for back-office efficiency. Now real value here, we believe, comes from reimagining end-to-end processes and moving from AI-assisted tasks to full AI automation, which we think will boost capacity and drive down costs.

Moving on to culture. Building a high-performing resilient business is hugely enabled by an open, inclusive and customer-focused culture. Now we focus on this hugely as we understand that our people are our greatest asset and are right at the heart of our business. This year, we launched a new cultural framework designed and led by our next generation of leaders in FY '26 as part of our leadership development program. And this brings all areas of our group under a single core purpose, which is now defined as Furnishing better lives, together. This reflects our collective belief that our responsibility extends far beyond just selling furniture. We're equipping people for better everyday living in their homes and communities.

Our purpose is supported by 3 core values: customer at our heart, better never stops and everyone together. And our purpose is reinforced by our newly realigned DFS Group charity partnership with BBC Children in Need, which addresses furniture poverty to help vulnerable families turn a house into a home. We have thriving colleague networks, each sponsored by a senior executive, and these remain central to advancing our inclusion agenda by connecting like-minded colleagues, driving meaningful change across all aspects of the group. This year saw the launch of our seventh network, the Mankind Network, bringing together men across the group to support one another and champion positive mental health.

Now the impact of embedding this culture is clearly visible in all of our metrics. Our latest internal, "Your Say" survey showed a further strengthening in workforce sentiment with overall colleague engagement rising 19% year-on-year. Our teams are more aligned, more motivated than ever before, and we can't thank them enough for their dedication and passion for our group.

Turning now to outlook. Still, I want to address both the near-term realities of the trading environment, but also reiterate the confidence we have in the medium-term potential of our group. Starting with the near term on the left-hand side of the chart. Clearly, macroeconomic pressures persist and the consumer backdrop remains delicately balanced. Our core planning assumption for the whole year is that the market will remain relatively flat. Against this backdrop, we expect to deliver moderate profit growth year-on-year, driven by our compelling customer propositions and a continued focus on cost control and capital discipline. We remain comfortable with the company compiled consensus, which currently sits at around GBP 48 million of profit before tax.

Looking at our current performance, trading through the first 12 weeks has been in line with our expectations with order intake at minus 2.5% year-on-year. We believe this represents an encouraging performance in light of the exceptional weather across July and August, and it's actually an improving trajectory relative to the second half of FY '26. Finally, on cash, as Dominique outlined, our CapEx guidance for the year is set between GBP 27 million and GBP 32 million of cash CapEx, and that will be focused on proven high-return projects that support our growth agenda. Looking beyond the near term, we believe the group is exceptionally well placed to deliver the medium-term financial targets. We have multiple levers within our control, growing our upholstery market share, growing our share in home and monetizing our platforms; and second, market demand. The business is now in the strongest position it's ever been to capitalize when the market starts to recover.

So in conclusion, we've delivered a strong financial performance in FY '26. We've grown profit significantly, achieved the gross margin target, generated strong free cash flow and deleveraged our balance sheet further. Operationally and from a customer perspective, the business is in great shape. All of our internal operating metrics are flashing green, and we will strive to get better under the better never stops mindset. We have a new group purpose and values, an updated growth strategy, a highly efficient vertically integrated platform. We've got clear scale and growth levers ahead of us to achieve our profit and cash flow targets. Finally, I'd like to thank our entire team across our stores, our factories, our distribution centers on the road, our customer service teams and our support centers for their exceptional execution this year.

Thank you always for your time this morning. Dominique and I will now be very happy to take any questions you may have.

Ben Hunt from Panmure Liberum. Just intrigued if you could sort of flesh out a few more details on Carlisle and Bolton and Stockton with the mezzanine. Scrolling down some of the numbers, it looks like you're sort of making pretty good margin on those mezzanine sales that you were talking about. Why only 20? Is that a sort of a particular -- is there anything constraining that? Or I mean, given the returns, it feels like you want to do as more as you can, but any findings or anything you can, sort of, wax lyrical on that would be great.

Wax lyrical, that is a great opportunity. Thank you.

It is a bit short, isn't it?

Careful what you wish for, Ben.

Yes. Sofology, we've always -- I think we have 56 stores in Sofology now. And we -- from all of the data we see, we have huge amounts of data because DFS has 115, so we know the towns and cities where there is white space of Sofology. We have all the customer data as the sort of demographics that a Sofology store would attract. And Carlisle is a classic example. Near stores geography-wise, you're talking Gateshead and you're talking backing into Scotland. So we can see the white space. We're looking for the right micro location and as soon as we put that down there with the right sort of marketing, we see good profit opportunities. Payback on that sort of investment is in the region of 2.5 to 3 years, and we see at least 10 locations across the U.K. to put those down. I think the key thing for us is finding the right micro location.

So we know all of the towns and cities, it's just finding the right locations in the next few years. But good payback on them, clear returns on capital, so happy with that. The Bolton refurbishment is taking one of our really, really strong stores in Bolton, great retail park and just giving it what we've learned from a DFS in terms of reformat, refreshing it, working with the teams to create a really lovely environment for customers, and we do see an uplift in sales performance. And typically, when we've done it in DFS, we've seen at least a 5% uplift in like-for-like. So that's a good -- another good business case for us.

Stockton is 1 of 5 mezzanines we've put into DFS stores. And now what we've seen consistently, just to reiterate the numbers, is around a 25% increase in sales in that particular location. And the investment is around GBP 1.5 million, GBP 1.6 million. But what you also have, and this is quite the reason Ben around the constraint on them is you are in the store and you're relatively disrupting that store for around 18 weeks, around 4 months. As you can imagine, putting a mezzanine in and doing it in the right way from a health and safety, and a colleague point of view, we keep the store trading.

So we have to be careful about disrupting the big stores. But in terms of the returns, we're seeing 25% uplift in sales gives us a good drop-through on profit. And I think the kind of payback is around about 3.5 years, IRR between 25% and 30%. So now we've done 5 of them. We're seeing that consistent return. We've identified the stores that we'd like to go to. And I think if I -- he will be listening our Property Director. He's rubbing his hands thinking yes, we're going to be busy. I do think there's GBP 20 million at least, we said GBP 20 million plus.

Is the GBP 100 million linked to GBP 20 million? Or is that -- could go beyond?

About half of the GBP 100 million revenue growth is linked to the mezzanine rollout, and it's over a 4- to 5-year period. And we've got to balance the kind of trying to pay down the debt, making sure we're investing in across the piece, not just mezzanines, investing in our maintenance capital, investing in our showroom refurbs as well as paying returns to shareholders. So that's kind of the balance we're trying to strike, Ben, in terms of the pace of how we do the rollout of mezzanines.

Jonathan Pritchard at Peel Hunt. Two, if I may. The 58% gross margin, you've hit your target. I know you haven't set a new target. Does that mean because 58% is what you think is the right answer. And therefore, if there was a tailwind, if there was an opportunity, you might reinvest any sort of excess margin back into the product, back into the proposition. And secondly, range expansion within DFS, within Sofas. Just a bit more color on that perhaps. You talked about underpenetrated areas geographically, demographically, without being commercially sensitive, what sort of things are they?

It's a good question. I'll take that one and then you do the margin. So -- I'll give you a good example. So Central London, our market share is relatively lower than the rest of the country. Most of our stores are all sort of around the kind of the circle of the M25, Brent Cross, these sorts of places. So Central London and the flats, we all know is a huge opportunity. We can see that data. We've just launched a range in partnership with Manoir actually, called OnCloud9. And basically, imagine a sofa in a box, like a mattress in a box, and you can lift. You literally open up the box and the sofa appears. It's got no wooden frame, and it can be lifted up flat into flats, into lifts and it is this amazing sofa. And it's a hugely exciting opportunity, particularly for Central London. It's that sort of thing that we're looking at.

So what we're looking at from the data is where our markets we can see every postcode that we deliver into across the country. So we can see where our market share is by postcode. So we know in Central London, big opportunity, what's the product innovation that's going to unlock that. So those products are priced GBP 699, GBP 799, great value. They actually sit beautifully and can be delivered in a box and quickly within 3 or 4 days, which is typically customers in Central London would want. Good margins, very excited about it. And that's a sort of example. Through to, you then look at some of like the Amanda Holden range, which is a big first for us in terms of a real influencer and a public figure. She's got a fantastic style and that appeals to a segment of customers that perhaps we weren't getting to. So that's how we think about using brands and looking at the data to try and unlock some opportunities.

Margin...

Margin sustainability?

Yes. So we're really pleased to have hit our 58% target on margin and growing 160 bps. And I think it's fair to assume that, that remains constant. We've got some tailwinds coming through to offset the headwinds. And so we're keen to keep that target as is. I think your question around would we invest a bit further? What we're seeing at the moment is, if we do have additional margin, if we have an opportunity to invest in our performance marketing, which is a strong lever to help drive revenue and growth. We do see that come through. We've got a very clever profit model. People much cleverer than Tim and I. Sorry, Tim. So we understand our customer and how to drive extra revenue through that performance marketing lever.

Yes. And that's true.

Anne Critchlow from Berenberg. Two questions, please. So you just referenced performance marketing, but I wondered if you could give me a bit more detail about marketing plans in general, any particular weighting into the first half and second half? And what your thoughts are about the conventional traditional marketing channels and digital and AI, and the split of how spend might shift over the years? And then secondly, just any thoughts on the replacement cycle. So looking forward perhaps to 2028, which I guess would be 7-ish years since the pandemic bubble and whether that played any part in your sort of medium-term targets and thoughts there?

That's a good question. And so, I think, in terms of marketing, we're actually really excited about the geo opportunity, and the teams have been working really hard with good partners to measure exactly where we are in terms of visibility with total search, so including the ChatGPTs of this world. And the good news for us is that all of the work that we've done for many years on SEO and search [indiscernible], and all of those things will actually pay dividends here. So the data feeds that we have, the domain scores that we have for our website, which are relatively strong, the SEO scores that are relatively strong, plus the fact that on key external reference sites such as Trustpilot, where we have nearly 700,000 reviews at 4.9 stars, those are key reference points when you look at the total search universe.

So we're working already on alpha tests with Google, with ChatGPT and others. So we are at the forefront of this. And the teams are quite excited about expanding our data feeds, looking at all of the imagery that we can create per SKU for both DFS and Sofology so that we can appear when customers are searching as they are doing more and more in this country, we're seeing things like 0 clicks. So when you go into -- you use the AI tool, people then don't go to the website. So we need to appear where customers are searching. So we understand that universe more. We've got great strength in data feeds. I think more and more of our investment will go to that, Anne, over time. But we still see TV is really important to us, and it's a hugely successful returning channel. So it's that blend.

I think in terms of half by half, it's pretty flat year-on-year. I'm not thinking there's a huge difference in terms of what we're doing and still CTV is really important to get that awareness out there, but increasingly getting more sophisticated in that total search area. So yes, I think the teams -- the clever people in our teams as well as the partners that we use are pretty excited about the opportunity for us. I hope that answers the question.

I think in terms of replacement cycle, you're right. The replacement cycle is typically every 7 years. The last time there was a big boom in sofas was the summer of 2020 post-COVID. We know that. So in fact, we're due one next year now. It's the million-dollar question as to when the market recovers. We can't wait for that. We're positioning ourselves to do that. We have the scale and the capacity to upscale. We don't need to invest any more fixed cost in our warehouse and our manufacturing partners. We've got the scale to flex up. I'd love to see that coming through. It's not necessarily part of our 4-year plan because we kind of -- it would be a guess as to when it's going to happen, but we're ready when it does. And with the market share at 40% plus, we know that the drop-through is about 40% on a profit basis.

So for those who can do the math, we don't need a huge -- we need about 1/3 of that to recover, holding our share, holding our margins will generate significant profit. I'd love to see it come as soon as possible, but I think -- and actually, there were some proof points coming through back end of calendar -- last calendar year, January, February, you can start to see it coming. And then unfortunately, various world events happened, which I am not qualified to comment on.

David Hughes from Shore Capital. A couple from me, if I may. Firstly, on the Sofa Delivery Company, obviously, we've talked before about it's a big differentiating factor for you and the push into kind of the B2B side of things. How much capacity do you have to take on additional work, assuming the market stays roughly where it is at the moment in terms of your own sales? And then secondly, just talking around home versus upholstery. Obviously, you're seeing some really good growth come through in the home side of things. How does that impact the margin mix? And what kind of moving parts should we expect there?

Yes. Good question. Dominique, you take that one. On Sofa Delivery Company, we've got 3 third-party partners that we are now working with successfully. I think that's fair to say they are delighted with the service that we provide. We focus on customer service, but we also give them a really competitive price. And so they want us to do more. And I think the -- without going into commercial sensitivities too much, we're very much -- I think the guys said we're very much open for business and want to take more in. So please drop me an e-mail after this.

We've got probably about another -- of the spare capacity we have at today's levels, we've probably got about another 80% of that, which we can sell. I can't go into too much detail, it's too sensitive, but there's plenty of opportunity for partners to work with us. We only really have -- because of all the fixed costs that we already have, it's only a variable cost that we will have on top of that. And therefore, the prices that we can offer these third parties are really competitive with a great service. So it's exciting. It's -- the technology has all been opened up now. All of our APIs are ready. We've got a portal, so we can ingest data from third parties and give them that great service any time from now.

And then home margin. So home, you're right, David, it grew nearly 11% this year, and the margin is slightly lower. So it's approximately 50%. And so we will see the percentage rating change. However, the important thing is it's all incremental cash. I think that's really the important thing there. So we've got that GBP 3 billion TAM in sofas and a GBP 5 billion TAM in home, and we're really well positioned to take a nice slice of that. So while it's a lower percentage margin, it's a nice cash incremental margin.

I think it goes a little bit to Jonathan's point as well. If the 58% is the total group number, you will get a bit of dilution as home grows. And if we do try and grow the upholstery margin, that's probably going to balance out a little bit, David, over time.

It's Hai from UBS. I have a couple of questions, please. The first one is on the shape of the current trading and also the breakdown in, kind of, the dynamics between the brands, DFS and Sofology for that minus 2.5% number and the shape through the 12 weeks, whether the exit rate is a bit higher than before, than the beginning? And my second question is your margin drivers for next year. So without accounting for the FX and freight, how are you going to drive your product margins going forward given that you've already done the bulk buying, the group buying, supplier rationalization?

You take the second one. In terms of the shape, actually, from a 2.5% number, it's pretty much exactly the same for DFS and Sofology. So no real difference across the 12 weeks. And it's very difficult to, kind of, talk about entry and exit for Q1 because it can be, if you look at it on a weekly basis, having been here 15 years, very volatile. So at the start of the period, July, if you remember, World Cup is on and we're all very hopeful about England, and it's all very hot. So footfall is down. And so you can be there. The exit point, if you've asked me 2 weeks ago, is very strong. We had a record August bank holiday, fantastic, but the last 2 weeks have been pretty sunny.

So we don't really look at it week-on-week, kind of look at it quarter-on-quarter. So quarterly, minus 2.5% is better than quarter 4, it's better than quarter 3, and that's despite the hot weather. So that's how we see it. I think it's important in the next couple of months for us. So October and November are big bookings month, for a big order intake for us in terms of guaranteed Christmas. So we kind of like the sun to switch off, a bit of light drizzle and get back to just being normal. We don't like the 25 degrees high. Some people do, but we don't.

And then from a margin perspective, Hai, you're right, we did see about 70 basis points of product structural improvements in last year. And those aren't one-offs, but we'll continue to see those benefits come through. We'll annualize the ones we made last year, and we'll also continue to see those gains come through. And the other thing worth noting in our margin, the reason we have confidence about 58% is that we also have the tailwind of FX. So we're largely hedged for FX, [indiscernible] $0.03 favorable into FY '27. So we've got that nice protection there on our margin.

Okay. I think we've covered all the questions. And thank you very much for your attention, and have a great rest of the day.

Good morning, everyone, and welcome to the DFS Group 2026 Interim Results Presentation. I'm Tim Stacey, Group CEO; and I'm here with Marie Wall, our Interim CFO. And together, we will update you on our first half performance, provide a strategic update and also future outlook.

Now there are 3 key themes that we'll bring out in the presentation today. Firstly, on the financials, Marie will talk to the good results we've achieved in half 1 and also update you on our FY '26 outlook. Second, I'll talk about how we've delivered on our strategy, which has supported our improved performance and delivered on our plan to reduce our debt. And third, in terms of future growth, I see significant growth potential for the business across the medium term. That's revenue and profit growth, which will deliver high levels of free cash flow.

So on to our half 1 performance. In what remains a broadly flat upholstery market, we grew group order intake by 2.3% year-on-year with both of our retail brands in growth. Gross margin progress continued, up 110 basis points year-on-year, marking our fourth consecutive year of improvement. Combined with disciplined cost control, this delivered a significant uplift in profitability. Underlying PBT increased to GBP 31 million, up nearly GBP 14 million year-on-year, demonstrating the operational gearing in our business model. And we achieved a 5% PBT margin we've been targeting out with any market recovery.

Importantly, we also strengthened the balance sheet. Strong cash generation enabled substantial debt reduction, bringing leverage down to 0.8x, now just within our target range of 0.5 to 1x. This enhanced financial flexibility positions us very well for future growth and also allows us to reintroduce a dividend, which Marie will talk to later in the presentation.

Looking ahead, we see significant growth potential over the medium term. Our vertically integrated platform, exclusive brand partnerships, scale advantages and logistics capabilities give us confidence in our ability to grow profit and with the revenue to profit drop-through of around 40%, the business is well positioned to benefit from any future recovery in consumer confidence and market demand. We, therefore, remain confident in delivering our medium-term targets of GBP 1.4 billion of revenue and 8% PBT margin. In summary, we've been focused on executing our strategy. We've delivered profit growth, reduced leverage into our target range and position the group strongly for the future despite what's clearly a challenging external backdrop.

Just briefly, turning to some key highlights for the first half. First, our non-upholstery home offer continues to build real momentum. Increased marketing, expanded product ranges and selective showroom investments are driving customer engagement and conversion leading to a 14% year-on-year order intake growth. Secondly, exclusive brand participation reached 42% of DFS' sales mix. This is an important strategic lever for the group, strengthening our differentiation and enhancing our customer proposition with ranges that customers can't find elsewhere.

And finally, our approach to customer satisfaction remains a core differentiator. Our DFS established customer Net Promoter Scores improved by 10 percentage points to record levels. This reflects the hard work of our colleagues across the group and the continued focus on product and service quality across the end-to-end customer journey. And I'd just like to thank all of our colleagues for their incredible work in the half. Look, in summary, we've accelerated growth in Home. We've leveraged our exclusive brands further, and we've increased our customer satisfaction to record levels.

I'll now hand over to Marie, who will take you through the financials for the first half.

Thank you, Tim, and good morning, everyone. It's a pleasure to be here today. I'm going to begin by walking you through our key financial headlines. We achieved strong revenue growth of 8.6% year-on-year. And this was delivered through a combination of order intake growth over the half and a larger opening order bank coming into the year, which drove a higher level of deliveries in the first quarter. Underlying profit before tax and brand amortization increased by GBP 13.9 million to GBP 30.9 million and underlying basic earnings per share increased by 4.5p or 85% to 9.8p.

The strong profit performance is the result of higher revenues, supported by 110 basis points of gross margin expansion and lower interest charges resulting from disciplined cash management and lower levels of bank debt. We continue to reduce our absolute debt levels to build balance sheet resilience and ended the period with net bank debt of GBP 60.6 million, down GBP 56.1 million year-on-year and down by GBP 104 million since full year '24. This was achieved through the improved profit performance, the successful execution of our cost program and our disciplined approach to cash management.

I am pleased that our leverage position has continued to improve and with our reported leverage now at 0.8x, that's 1x after adjusting for the phasing of working capital. This is just at the top of our target leverage range of 0.5x to 1x, and marks a significant improvement on 1 year ago. In summary, the group's performance in the first half of FY '26 built on the momentum we achieved in FY '25 and marked another strong period of profit growth, free cash flow generation and importantly, substantial deleverage.

So moving on to our sales performance and starting with order intake. Following a slower than envisaged start to the period due to exceptionally hot weather in July and August, order intake performance strengthened over our first half. For the period as a whole, the group achieved 2.3% year-on-year order intake growth in a market that was broadly flat year-on-year. Both our retail brands grew their order intake in the period, reflecting the success of our commercial initiatives and driving volume growth in both brands.

In DFS, exclusive brands continue to perform strongly and reach record levels. In addition, sofas with a high number of technology components such as wireless chargers, wine fridges, our patented heated seats, and our sound systems helped contribute to higher average order values. As Tim mentioned, our Home non-upholstery category also performed strongly in the period, up 14% year-on-year. This benefited from the recent marketing investment and the rollout of some of our exclusive upholstery brand partnerships into our Home ranges. Overall, DFS achieved order intake growth of 2%.

In Sofology, the range and price changes made in the previous year, along with our continued focus on range optimization, has meant the proposition continues to resonate well with the consumer. And this underpinned higher conversion rates, driving the brand's 3.4% year-on-year order intake growth. Gross sales, which are reported on the delivery of customer orders increased 8.7% year-on-year. This is higher than the reported order intake growth of 2.3%. Now as I mentioned earlier, this is due to the elevated opening order bank relative to the bank that we entered the year within the previous year.

Revenue, which is at the bottom of the table, is supported after deducting VAT, the cost of providing warranty products and interest-free credit. It grew at a similar rate to gross sales with the cost benefit from SONIA rate reductions reinvested into strengthening the commercial proposition. So in summary, we achieved a strong top line performance in a subdued market through our ongoing focus on improving our market-leading proposition.

Moving on to gross margin. Following 3 consecutive years of gross margin rate improvement, the group delivered a further 110 basis points of gross margin expansion in the half, making strong progress towards our 58% margin goal, supported by improved product margins, stronger U.S. dollar GBP exchange rates and a return to historic average levels on freight rates and SONIA rates.

In absolute terms, gross profit increased GBP 30 million year-on-year to GBP 316.3 million. So running from left to right on the chart and taking each building block in turn, the strong revenue performance translated into an incremental GBP 24 million of gross margin in the half.

Product margins increased 30 basis points or GBP 1.4 million through a number of initiatives, which we initially kicked off under our cost-to-operate program. Now these include were distributing products across our supplier base to optimize cost of goods and quality, ongoing product reengineering and reviewing opportunities to better leverage the group scale. The latter has been enabled by bringing together commercial buying teams of each brand under 1 leader.

Freight rates gradually reduced through the first half returning back towards longer-term historic average levels by the end of the period. This drove a GBP 2.7 million or a 50 basis point year-on-year rate improvement, which was ahead of our initial expectations. It's also worth noting that every $1,000 movement in freight rate per container impacts our annual freight costs by around GBP 7 million to GBP 8 million a year.

And finally, foreign exchange. We benefited from improved U.S. dollar rates applied to our Far East products, and you'll recall that every GBP 0.01 movement equates to just over GBP 1 million of annualized cost impact. The average rate paid to the period was GBP 0.03 favorable year-on-year, resulting in a GBP 1.9 million or 30 basis point rate benefit. Now this was in line with our expectations. So in summary, another strong period of gross margin progression, and we have made good progress towards our stated 58% target.

So let's take a moment to look at operating costs. I'd like to start by reminding you of the target we set at the end of FY '23, which was to deliver GBP 50 million of annualized cost savings by the end of FY '26. As you may recall, by the end of FY '25, we had delivered GBP 53 million against this target, which was 1 full year ahead of our plan. That early delivery has reset our cost base and demonstrated the strength of our cost discipline. Importantly, those savings are now embedded in the business and are building and helping to offset inflation futures broadly as we expected.

Against that structurally leaner cost base, our operating costs, including depreciation and interest charges increased GBP 16 million year-on-year to GBP 285.4 million. Now this increase is largely explained by 3 factors: Firstly, volume-related costs increased GBP 6 million linked to the higher sales achieved in the period. Secondly, inflation added a further GBP 6 million or around 2%. And this was primarily driven by wage increases and the impact of the April 2025 national insurance changes. And finally, we invested GBP 7.4 million in marketing to drive awareness of our home proposition as well as returning Sofology to TV advertising with the launch of its new So Fussy campaign and this is resonating really well with our consumer base.

Initiatives launched last year through our cost-to-operate program have continued to provide savings in the current year, helping to partially mitigate cost inflation. For example, in our customer service operations, we are transitioning to service both retail brands through 1 group function, enabling us to leverage standardized processes and using new technology to drive efficiency and improve the customer experience.

Debt interest and depreciation charges fell by GBP 3.4 million year-on-year, and the majority of this or around GBP 2.5 million of the reduction relates to interest savings resulting both from the high levels of free cash flow generation over the last year, which reduced absolute debt levels and, to a lesser extent, from a lower average funding cost. In addition, the group has taken a very disciplined approach to capital investment over the last 3 years with absolute levels of investment being lower than historical levels, and this has driven a lower depreciation charge in the half.

So looking forward to the second half, we did not expect the year-on-year operating cost increases to be as significant as in the first half as we cycle the inflationary headwinds experienced in Q4 last year and we annualized the marketing investment increases we made. We are mindful of the potential impact of the conflict in the Middle East and expect our exposure to higher levels of inflation to be limited in FY '26 and this is because we are hedged across energy costs and our shipping agreements. Now this is something that we are obviously keeping a close eye on, and we will seek to minimize any potential longer-term impacts as we have done before.

Turning to cash flow and debt. Building on a strong cash performance in FY '25, the group again generated a high level of free cash flow in the first half. In this period, GBP 46.4 million of free cash flow was generated. We have maintained capital expenditure at relatively low levels compared to long-term average levels for the group as we focused on debt reduction, limiting growth investment to capital-light and short payback growth projects. As our financial position has improved, in half 1 FY '26, we also invested in some additional growth opportunities. Now these include a new Sofology showroom in Carlisle and a mezzanine investment in DFS's Stockton showroom to expand the upholstery ranges on display and create dedicated space for expanding our Home offer.

We continue to invest in data, AI and technology to both enhance the customer experience across the buying journey and to improve the quality and efficiency of our supporting operations. We expect capital investment for the full year to be in the range of GBP 24 million to GBP 28 million, as previously guided. Interest costs were lower year-on-year due to the lower average net bank debt levels through the period and, to a lesser extent, benefiting from a lower average cost of financing, resulting from SONIA rate reductions and a lower leverage premium on our RCF facility.

Corporation tax payments were higher year-on-year and this is due to the benefit in half 1 full year '25 of recovering historical overpayments. Lease payments were also GBP 7.3 million lower year-on-year, reflecting a timing difference on rent payments, which will reverse as we go into the second half. Working capital inflows in the period totaled GBP 17.7 million. This inflow is driven by seasonal flows associated with the large volume of guaranteed for Christmas orders, and this is quite typical. Following typical trends, we would expect this to unwind by the year-end. It is worth noting that the working capital inflow was higher in the first half of FY '25, and this was driven by a large increase in the level of customer deposits held following the significant improvement we saw in trading performance towards the end of the first half last year.

So turning to debt levels. Over the last 18 months, we have focused on building a stronger and more resilient balance sheet. And we have reduced absolute debt levels by GBP 104 million to GBP 60.6 million at the end of half 1. This debt reduction has been achieved through the improved profit performance, working capital inflows resulting from the improved trading and our disciplined approach to cash management. Pleasingly, bank leverage is now at 0.8x or 1x after adjusting for working capital phasing. And this means that we are now at the top of our target 0.5 to 1x leverage range, making good progress towards our plan to operate within and towards the lower end of the range. I'll talk to you about capital allocation shortly.

So I'm now going to take you briefly through how we see the macro outlook to provide a little bit of context before I discuss the outlook for this financial year and dividends. Overall, the key market drivers applicable to our sector remain broadly stable. Starting with consumer confidence on the left-hand side of the chart, we know there's a strong correlation between consumer confidence and market demand for upholster furniture. The appetite for major purchases has been relatively steady over the last 12 months. However, they remain below pre-pandemic levels and confidence is not yet at a level that would support a meaningful step-up in discretionary spend. Of course, the recent events in the Middle East are not reflected in this data set, and we're also mindful that unemployment has edged upwards towards 5.2% towards the end of the calendar year. This may further weigh on sentiment in the near term.

Moving to the middle chart. Real household disposable income is growing and forecast to continue to grow but at a slower pace than we had seen in previous OBR forecast. Consumer balance sheets are stronger and savings rates remain above pre-pandemic averages. The key point here is that income growth is not yet fully translating into spending growth, particularly in big ticket categories like ours.

So finally, on the right-hand side, property transactions. Transactions typically drive around 20% of upholstery purchases. And as you can see from the chart, these have been relatively volatile in recent months given the uncertain macro environment. Whilst the growth rate has slowed recently, it's largely been in positive year-on-year territory for almost 2 years now. So in summary, whilst the structural drivers are broadly stable, they are not signaling a near-term inflection point and the potential consequences of what is happening in the Middle East are hard to determine as I stand here today. So we continue to plan on the basis of a relatively flat and subdued market backdrop, and we're focusing on what we can uniquely control.

So bringing that together for the outlook for this year. Since the half year, we have seen some softening of footfall trends linked firstly to adverse weather conditions over the period, and we are aware that consumer confidence remains really delicately balanced. We will remain focused on executing our strategy. And in combination with our disciplined approach to gross margin and cost management, we are comfortable with reiterating our uplifted profit guidance in the range of GBP 43 million to GBP 50 million. Now that does, of course, assume no material supply-driven disruption, which could impact the delivery of customer orders in the full year, resulting from the current geopolitical events.

And from a cash flow perspective, as I mentioned earlier, we don't expect to see a reversal of the half 1 working capital inflow as a result of typical seasonal trends and the rent timing benefit we had in half 1 will also reverse in half 2. Our full year cash CapEx is as previously guided at GBP 24 million to GBP 28 million, and that includes some further growth-related investments in our second half.

Looking forward, our capital allocation priorities remain unchanged. We continue to focus on improving balance sheet resilience, reducing debt down to operate at the bottom of our target range of 0.5x and to invest to maintain the group's asset base and support future growth, and importantly, to provide sustainable shareholder returns.

So as Tim alluded to earlier, in light of our improved position and reiterated guidance for the full year, the Board has approved the payment of an interim dividend of 1p per share. In determining the appropriate size of the dividend, we took into account that demand drivers remain delicately balanced and that the group is not immune to geopolitical events and their potential impact on the macro environment. We believe that returning to the dividend register in a measured way is the right course of action to balance investment in growth, continuing deleveraging towards the lower end of our target range and support sustainable shareholder returns.

And with that, I will now hand back over to Tim.

Thank you, Marie. I'd like to take a step back and focus on the reasons why we've delivered this performance in the first half. Now we have been focused relentlessly on executing our strategy and controlling the things that we can control, carrying forward the momentum we had from the last financial year. And the financial outcome reflects the progress we've made in 3 key areas, which are: Leveraging our scale and vertical integration; utilizing data and technology; and harnessing our unique people and culture to drive performance. Now these 3 enablers are increasingly interconnected, and I'll take you through each one of them now.

In terms of leveraging our scale. Now scale is a fundamental competitive advantage for our group. We're the clear market leader with around 39% value share of the upholstery market, and we operate at a scale that is unmatched in U.K. upholstery. This leadership gives us structural advantages, and it's difficult to replicate. It enables us to secure exclusive brand partnerships, maintain strong relationships with our supplier partners and operate highly efficient shared functions across design, manufacture, retail, logistics and servicing.

In DFS, exclusive brands remain central to our proposition, now representing over 42% of our sales mix. Our collaborations with brands such as French Connection, Joules, Ted Baker and Country Living allow us to create differentiated ranges that customers can't find elsewhere. More recently, we've enhanced our ranges with technology-led innovation. Our Cinesound range and Soundwave by my good friend, Shaquille O'Neal, bring bluetooth connectivity, immersive sound and integrated features directly into the sofas. We've also recently launched a super exciting collaboration with Amanda Holden, bringing bold statement designs to our customers' homes. And as you can see here on the far right-hand side of the slide.

In Sofology, the new So Fussy campaign featured Craig Revel Horwood, which has resonated strongly with customers. We've also launched new La-Z-Boy ranges into Sofology, the Atlanta and Colorado, carefully selected to complement the existing offer and drive incremental growth. In addition, Sofology's post-Christmas sale successfully drove strong order intake growth. Our scale also extends into our Home offer. Partnerships with House Beautiful and Ted Baker alongside our in-house brands supported 14% growth in home order intake, as I mentioned earlier. In addition, mezzanine expansions are enhancing the showroom footprint for Home together with investment in marketing driving awareness.

In terms of vertical integration, our vertically integrated model gives us end-to-end control from design and sourcing through to logistics and final mile delivery and customer service. This end-to-end control drives several benefits. Firstly, design-led value creation. We control product development, which means we can engineer margin and cost discipline and quality into the product ranges from the outset. Secondly, our in-house creative engine allows us to produce marketing assets faster and more cost effectively, improving speed to market and reducing external spend.

Next, as the largest sofa manufacturer in the U.K. and also through the Sofa Delivery Company, operating as the U.K.'s leading 2-person sofa delivery service, we can provide quality, consistency and cost leverage, and this underpins our strong Net Promoter Score performance. I'm pleased to be able to say that The Sofa Delivery Company has now signed contracts with 2 third-party retailers. This creates incremental revenue utilizing the spare capacity within our existing logistics infrastructure. And lastly, across customer service, consolidating specialist teams while retaining separate brand identities has enabled us to leverage expertise, improve consistency and drive efficiencies.

Moving on to data and technology. They're clearly increasingly central as to how we differentiate and drive efficiency across our group. We're building capability within our proprietary platforms to enhance both the customer experience and our operational performance. And we're also embedding technology directly into our product ranges, whether that's the integrated sound systems, wireless charging, enhancing functionality, creating clear points of differentiation and supporting higher average order values.

We're also using AI to tailor the online journey. New customers to our websites will see more inspirational research-led content while returning customers are shown previously viewed products and relevant recommendations. This is improving engagement and conversion while strengthening brand perception. We've also further developed our websites to provide our customers with a more brand-enhancing omnichannel experience. For example, in Sofology, tools such as the showroom range locator and complete home functionality are enhancing flexibility and driving conversion. Interest-free credit remains a core part of the upholstery market, and we've introduced a new soft search online credit checker, which allows customers to assess their eligibility from the comfort of their own home before visiting a showroom. This improves their confidence. It reduces friction in the buying journey and drives efficiency for our sales colleagues in store.

Finally, AI now supports written communications, intelligent call routing and call analysis in our customer service function. This results in faster resolutions, improved service quality and better targeted colleague training. Now taken together, these initiatives are driving higher e-commerce NPS, improving productivity and enabling us to offer a truly channel-agnostic customer experience. So on to our culture and our people. Our culture underpins everything we do, and we've worked really hard in recent years to integrate group functions while preserving the distinct retail branded identities. That cultural evolution continues to unlock collaboration and performance and team spirit.

Our leadership development program has played a central role in shaping our enhanced group employee value proposition, and this launches in half 2 this year. Our next leadership cohort is already underway. Inclusion remains a priority. With the launch of the new Mankind network, we now have 7 colleague networks, each sponsored by senior leadership, and that supports diversity, well-being and innovation across the group. Sustainability is also embedded deep within our culture, and we are progressing our property decarbonization agenda to meet our SBTi target of a 54.6% reduction in Scope 1 and 2 emissions by 2032.

Now this slide kind of brings it all together in terms of the financial outcomes of our strategy execution in the first half, and it's a pretty simple equation. Top line growth, combined with structural gross margin improvement and a leaner cost base is translating into meaningful profit progression. And this is demonstrating the operational leverage within our business model. It gives us confidence in not only the resilience of our business today but also the earnings potential in the future no matter what the macro brings.

Looking further ahead, earlier in the presentation, Marie provided some context around the market drivers being fairly subdued. But what I want to do now is to take you through what we can control. And we see 3 clear medium-term opportunities to deliver sustainable profit growth out with market recovery. Firstly, in our core upholstery business, we continue to focus relentlessly on new product innovation, investing in technology-enabled products, exclusive brands, et cetera. We'll also invest in our showroom space through new showrooms and refits. At the same time, we're operating with a structurally improved cost base and our vertically integrated operating model allows us to capture value across the entire supply chain. Our core upholstery business is leaner, more efficient and well positioned to translate any incremental sales into high profit conversion.

Secondly, the home market opportunity. Beyond core upholstery, we see a significant opportunity in the broader home market. The total addressable market here is GBP 5 billion, and we are initially focusing on GBP 3 billion beds and mattress segment and are leveraging our exclusive brand partnerships, creating new products. We've increased our marketing investment. We're expanding our showroom space through mezzanines and DFS and extending ranges online to drive growth. This is a natural adjacency for us and using our existing infrastructure and the DFS brand strength in all of our assets, we remain very confident in delivering GBP 100 million of incremental revenue over the medium term.

Finally, leveraging our platforms. Now The Sofa Delivery Company is a unique and scalable asset within our group. It already supports brilliantly our retail brands with market-leading customer service levels. Now we are increasingly utilizing spare capacity within our model to secure third-party contracts. This creates a capital-light scalable earnings stream, generating incremental revenue and profit through third-party opportunities without significant additional investment. And underpinning all of this is what happens in terms of the upholstery market recovery, which is still over 20% below pre-pandemic levels. Once that recovery comes, that will provide an additional tailwind but we're not waiting for that. There's things that we can control. Now given our structurally improved gross margins, our operational leverage and 40% drop-through, any improvement in demand will translate into meaningful profit and cash growth.

So just to summarize, we have 3 clear medium-term opportunities under our control, growing our core upholstery, growing market -- home market and leveraging our platforms. And that's in addition to any market recovery. This gives us a lot of confidence in the future progressing from around a 5% PBT margin today to an 8% PBT margin in the medium term. So in summary and standing back, in half 1, we're really pleased with half 1's performance. We achieved good order intake growth on the back of a really strong comparative last year, growth across both retail brands, improving our gross margins for the fourth consecutive year, generated strong cash flow with over GBP 100 million over the last 18 months, reducing our leverage back into our target range.

We're now operating from a position of real increased financial strength. And of course, the market remains subdued and the macro is uncertain. But we have multiple levers in our control from continued self-help and lots of experience of dealing with previous crises. We know how to manage this business. We can improve our upholstery proposition and grow there. We've got a great opportunity in the home market, and we can leverage some of the platforms that we've been building over the last few years. And over the medium term, as the core upholstery market recovers, we are structurally better positioned than ever before to convert that revenue into high levels of profit and cash growth. So we, therefore, remain confident in delivering our full year guidance and also achieving our medium-term targets of GBP 1.4 billion of revenue and 8% PBT margin.

Now before I close, I'd just like to thank Marie for her outstanding contribution as the Interim Chief Financial Officer. She's been -- provided strong leadership, stability, great support through this important phase for our group. I'm incredibly grateful for your support. Thank you. We also very much look forward, I know she's watching to welcoming Dominique Highfield as our new Chief Financial Officer in May. And Dominique joins us in a very exciting and challenging time. And I'm sure she'll play a key role as we continue to strengthen our business and deliver on our medium-term ambitions.

Last but by no means least, I'd like to thank every single one of our colleagues for their relentless dedication and focus on customers and looking after each other. The culture we've created in this business, the resilience we have and the spirit we have will see us through whatever. So a big thank you.

That concludes our presentation. And I'll now invite Marie back up so we can handle any Q&A.

On Home, could you just talk us through the P&L characteristics there, please, gross margin and where it ends up in operating margin terms. And that's the first.

And then I guess the big one, just put a bit more skin on the bones on current trading, please. Is it footfall? Is it online? Is it trading down? It seems that the last sort of, well, 10 weeks have been a bit tricky. So just talk us through the shape and what's been going on.

Yes. Thanks, Jonathan. I think on Home, so gross margins are slightly lower than upholstery margins. They're probably in the mid- to high 40s for particularly beds and mattresses and dining. So we've grown that over the last few years by bringing more in-house and using some of our exclusive products. So that's the first thing. We then have the variable delivery costs, and we have the variable marketing costs. So when you get down to contribution, though, it's very profit accretive because we're using existing assets in terms of our showrooms, our websites, our people. So although the gross margin is lower, from a profitability point of view, it adds obviously cash profit and helps there.

In terms of current trading, I talked a lot about this. So January, you've seen the half 1 results, footfall was broadly flat. The market was pretty flat. Average order values are up in both brands. Volume was up slightly in both brands. January followed a very similar pattern. Footfall not massively different. But what we started to see in February is actually stepping back up the funnel. So a bit less searches on Google, less traffic going to the websites and less footfall. And whether we thought we put that down to the weather. What we don't do is extrapolate short-term trends with this business does oscillate having been here 15 years. So usually, what tends to happen is if you get a period of bad weather, you get that back at some point.

I think what we've now got into is maybe some impact of consumer confidence and what's happening from a Middle East point of view. So we've just seen a bit of a softening of footfall. Average order value is still up. Conversion is still strong for those who are coming in. There's just fewer people around at this moment in time.

That said, we have got a strong proposition going into Easter, which is earlier this year, which is good for us. And having done all the numbers, albeit the order intake might be slightly lower this year and revenue might be slightly lower, we reiterated our guidance in terms of profit given the margin and the cost control that we have. Hopefully, that answers the question.

It's Anne Critchlow from Berenberg. I've got a couple of questions, please. So first of all, on marketing, I'm interested to know how much SEO and performance marketing sort of takes up of your marketing budget but also whether you're beginning to transfer some of that SEO into GEO, so sort of making the website scrapable for AI to present answers to questions that customers are asking in AI sites.

And then secondly, if you could just remind us, please, on store numbers. So number of openings, closures, refits in each brand this year? And maybe also what you're thinking about for next year?

Yes. You're testing my GEO...

Generative Engine Optimization.

No, we actually -- so we're doing a lot of work on that because clearly, what's happened, as you see, Google changes its algorithms quite often. And one of the big algorithm changes is how well embedded or well searched your websites are from an AI perspective. So I think we've got AI looking at our website in that way. We're trying to adapt all the time. So we've got teams looking at. We've got in-house teams who look at SEO and also experts who are then thinking about the implications of AI onto our website. At this moment in time, the marketing money hasn't massively shifted. We spend -- and we don't massively talk about this from a competitive point of view but broadly, 50% of our marketing is spent in the digital space, social, SEO search.

But increasingly, AI is coming in and thinking about how do we integrate that into, a, our website but also think about off-site and how that works for us as well. So we're very cognizant of that. We are working with some expert partners in it and continue to involve. It's a huge part of our business, nearly 30% of our completion goes through the web channels. So hope that gives you a sense of what we're up to.

In terms of store openings, we've had one new store opening for Sofology. We've got another one planned. We currently stand at the end of December, 57 Sofology stores. We still see growth towards 65, 70 over the coming years. We'll do that selectively in the right locations. We know exactly which cities to go to pinpointed that, just finding the right deals with the right landlords.

In terms of refurbishments, Marie, a few planned happening right now.

Yes. And we're spending quite a lot of time looking at that in terms of the returns on those as well. So they're going well. We get really nice uplifts when we do that, generally pay back within less than 3 years, 2.5, something like that.

And as we look forward into FY '27, we're looking at 1 or 2 more Sofology stores. We'll be looking at investing more in mezzanines and DFS. We'll be looking at doing some refurbs in both DFS and Sofology. So our growth CapEx will go up slightly from where we are today, not significantly but I think we're in the GBP 24 million to GBP 28 million for this year. It might get towards GBP 30 million for next year.

It's Hai here from UBS. I have a couple, please. On the gross margin target of 58%, you're very close to that now. Do you see further upside from that 58% as you go ahead? Or do you think the dynamic is that because home is becoming an increasing bigger part that would dilute it a little bit and you stay at 58% as the maximum level?

And also in terms of the operating cost -- second question, operating cost dynamic, how far are you hedged in terms of freight and energy? Typically, when do you renew these contracts?

Marie, you take the gross margin?

Yes. So on gross margin, we've had a little bit of structural support from that in the last year with the tailwinds that we've had. So we would expect to sort of stay around 58% going into full year '27. Home will be dilutive. So that takes off about 10 basis points as we start to see that become an important part of our portfolio going forward. There may be a little bit more structural support if Bank of England base rates come down further but I don't think anyone is anticipating that right now. And FX is anyone's guess where that goes. What we wouldn't look to do is try and drive that gross margin higher to be at the consequence of our customer proposition. So we'll always want to keep something in the tank to keep that proposition as sharp as we would like. And so I'd see 58% as a reasonable number to go for and with a little bit of dilution coming in from Home because we don't expect that to structurally get higher.

And on operating costs, so just taking your point there, on energy costs, we're hedged on the variable cost of electricity out to March '27. In fact, we're looking -- and we look at this all the time in terms of taking opportunities. So we're hedged on that, the variable cost of electricity. We don't use a huge amount of gas. That's part of our decarbonization strategy. And over time, we're reducing gas boilers. We're taking gas out of everywhere. So we're kind of switching to electricity. So electricity is hedged. Obviously, there's a risk around fuel costs. So Sofa Delivery Company has 200-odd vehicles using diesel. So there'll be a bit of a risk around pump prices. But in the grand scheme of our operating cost high, it's not a significant amount of money. So we've got other cost savings that we can apply against that.

Wayne Brown from Panmure Liberum. You're very clear on your outlook on revenue and the prospects there. But if you can just talk about market share, maybe put into context of how the business has historically performed in good times but more in times of uncertainty, how that market share has progressed? And do you -- potentially, if we are going into a period of greater uncertainty, maybe there's quite a positive story to necessarily reflect on what market share could potentially do in the next 12 months to 24 months.

Yes. It's a really good question, Wayne. And I think if you follow this business for a long time, in periods of uncertainty, historically, the DFS Group has always grown its market share. So if you went back to -- we were just looking at this morning, June '22, which was around the start of the cost of living crisis, the group had a share of around 36% per the GlobalData measure. I think we're now close to 39%, 40%. So we've grown -- that's not with necessarily adding more stores, that's about us growing our like-for-likes there. So there's a period there. If you went back further, post-COVID, we grew substantially from low 30s up towards 36%. So we've got a history of growing our market share in tough times.

If the market does get tough and who knows, we've got a lot of resilience in our business model. And actually, what I would say to everybody who are focused very much on the short term sometimes is compared to 4 years ago, we've got lower bank debt 4 years ago, we had GBP 90 million, we're now at GBP 60 million. We've got a higher market share. We've taken GBP 60 million of cost out of the business on a structural basis. We've done all of the organizational change we need to do. Our gross margins are close to 58%. We've never been in a stronger financial position as we go into whatever we're in now. So I think we can be on the front foot. And I think we see it as an opportunity to -- over the medium term to grow our share. It's harder for smaller businesses in our sector to cope with any downturn. So that tends to be -- we'll play to win in this type of market, Wayne, is the point.

David Hughes from Shore Cap. A couple from me. Firstly, on the interest-free credit side of things, are you seeing any change in kind of customer uptake on this? And in the case that we do see any kind of further base rate cuts across the year, would the strategy to be to further improve the IFC offer? Or would it be more around kind of taking the margin benefit of that?

And then secondly, on the cost side of things, if we do get extended periods of elevated costs and that starts to come through, obviously, you've already found quite a lot of cost savings. Is it the case that maybe the well of cost savings is running dry a little bit from that front and you'll be forced to kind of decide between margin and price increases?

Yes, both good questions. So do you want to talk about IFC first?

Yes. So David, on IFC, we did see like a really modest increase in penetration like really small as we went through the first half, particularly in DFS and also slightly longer tenure but again, really small, like we're talking a couple of weeks. So that's part of where some of that reinvestment has come back in terms of the Bank of England base rates. I think in terms of like how we might use any further savings, should we start to see those going through. I think that will really depend actually in terms of what we're seeing in terms of the market dynamics. So we're going to have to play our own game on that rather than responding necessarily to what competition are doing because there's a whole complexion of things that go into creating that proposition for the consumer.

Yes. At this moment in time, we're not expecting base rates to come down much from where they are. So -- but we keep a watching brief on that. But we want to strengthen the customer proposition while the market is quite subdued. But we're not really seeing much change in our assumption for next year is there's no change in base rates at this moment in time. In terms of cost, it's a really good question because we've had a really successful cost to operate program, taking over GBP 53 million out in 2 years, so 1 year ahead of plan. But always -- that's now embedded in the culture. And so we're using data a lot and across the whole business to identify areas to just to get those marginal gains all the time. So we're always looking for cost savings. And I think you saw it there, there's another over GBP 3 million of cost savings in half 1. It will probably translate to GBP 5 million, GBP 6 million for this financial year. So we'll keep looking to do that. There's a whole bunch of projects going off, and I chair operate-for-less-meeting along with Marie about really always looking at our cost base.

I think now, depending on what happens with the consumer, we'll then dictate how we behave. And what I would say unfortunately, for me, having been here a long time, I know which levers to pull. So we've had a lot of experience of what levers to pull as we go through the different crisis, whether it's really looking at things like marketing costs, which you don't necessarily want to do for the long term but you can do in the short term, things like looking at all sorts of different investments where you really focus on the things that you have to invest as opposed to what you would really like to do for them. So there are ways to manage that. But we need to keep our commercial proposition sharp. That's important.

Just sort of dwelling on sort of nicer things. Homes obviously been a good performance there. How much of a feel do you get of it being driven by new customers coming into the business? Or is it the existing customers cross-selling? And really what has been the sort of drive? Has it been marketing led? Or is it a combination of both really?

It's a good question. It's a combination of both, particularly where we have the product in store, it's obviously far easier to cross-sell to customers because they can physically see the product, and it's a much easier conversion opportunity and cross-sell opportunity for our store colleagues who are super hungry for this. So in our showroom in Stockton, which is in the Northeast, we put a really strong home offering. You see quite a lot of cross-sell more than you see new customers. So as we roll out the physical manifestations of home, we'll see a lot more cross-sell opportunity, point number one. The marketing though is around driving new customers in for those customers who are online, whether it's using AI or social or search, looking for a bed, mattress, we need to be there and start to build the awareness that we do sell these products and we have great products to sell. And so what you see is particularly online, a lot of more new customers.

There's a percentage of our customers, 20% who are buying a property, moving home. So if we then have a very successful direct marketing campaign, CRM campaign that says, if you bought this product or you're in the market for that sofa, then actually we do sell beds, and we can cross-sell there. And our marketing team has done a brilliant job on tapping into home movers. So that's broadening the basket, if you like, of products. So we do see using all the tools we have and the data we have, the GBP 100 million opportunity we see in the next few years as being a really valid opportunity to go after.

And then on the Sofa Delivery Company, I mean, it's good to see 2 wins there. Could you sort of give us an idea without giving too much away about sort of how lucrative that is and the economics of it and anything you can?

No, no. The point would be it's fascinating, Sofa Delivery Company, the big thing that they're selling is the customer service. It's not -- our cost to deliver the price that we're offering third parties is Uber competitive. But the thing that they really want is the customer service. And if you speak to the 2 CEOs of the brands that we're working with, they'll say they really, really value every single order that we deliver, we track it, we work with them. And so we're building our offer based on a differentiated customer service. We know that we can offer very good value. And therefore, for us, because we've already got the infrastructure costs in place and the capacity in place, the only cost to us is the variable cost of delivery.

And obviously, we're charging a bit more but I'm not going to go into the economics just yet but it's an opportunity. And we have had quite a few people come to us. We want to get this right, build the infrastructure, get the technology right, create all the portals, and that's what we're working on now. But we do see it as a good opportunity.

Andy?

Andy Wade from Jefferies. Three for me. The first one on volumes. We were positive in the first half. I think the implication is it's going to be slightly negative in the second half. Just interested in sort of why the -- what's been behind the change in direction? Is it that your share gains are going to slow, that the market is going to be a bit worse or -- and that just the start to the period has been challenging, therefore, that's going to be -- that's the sort of the driver because it's sort of in the bag to some extent. So that's the first one around volumes.

The second one is it sort of sounds like the major risk around the supply chain piece is cost of surcharges, if they -- additional surcharges if they come through. Just based on what you've seen historically, and as you say, it's not your first rodeo, what you've seen historically, any idea of sort of magnitude? I mean, it's not going to be GBP 10 million or GBP 15 million but it's probably not GBP 500,000 but interested in what sort of scale that could be?

And then the third one, I appreciate you've sort of answered Jonathan's questions in broad terms on the P&L side of things but on Home, just interested in terms of the drop-through, right? Because you're talking about 40% plus in the core business but the drop-through, presumably, it's nearer sort of the 10%. I don't know though, I'd be interested as to what the drop-through on the home side of things is.

Yes, good questions. I think -- the last 2 I can probably answer reasonably well. The first one is a bit more speculative. But I think on the supply chain costs, freight costs specifically, because of the routing that we go around, we go around the cape, we don't necessarily see it -- at this moment in time, we haven't seen any disruption, and we haven't seen any surcharges coming through just yet. But there could be, and we do anticipate at some point, fuel surcharges coming a few hundred dollars potentially, which we're aware of when we're talking to the shipping companies, we've got good relationships with them. We've got contracts in place. That will be potential for next year, FY '27, very immaterial for this year. I could possibly see a few hundred dollars. You're talking quick math, $2 million, $3 million on gross margin, if that was for the full year and that was sustained for the full year, which none of us know. So that's probably the order of magnitude there, Andy.

In terms of the home build drop-through, I would say it was probably close to double what you just said. If you think about a margin of mid-40s, 50s, knock off your variable costs and some marketing, we don't have any of the -- there's no fixed cost to go against that. That's just a pure drop-through contribution.

In terms of volumes, it's difficult. I mean, February, it was a washout really. But that was -- and did that -- was it just too much rain for people to come to the stores? Who knows? I'm not going to get into that speculation. But I think what we've seen is it's not just our footfall, it was the traffic. So I think customers slightly put off in February for whatever reason. In terms of going forward, we just extrapolated and said, okay, if we don't get February and March back, what does that mean for the rest of the half? And that's where we've come to the numbers we've come to. So we're not necessarily concerned by short-term trends. It's more stepping back and looking at the bigger picture.

And AOVs, Andy, remain strong. That part of the equation.

Sorry. Just one last follow-up on Ben's question. You may -- I may have better luck, we'll say. But on Sofa Delivery Company, we look at the spare capacity that exists within that. If we had to put the potential of the opportunity on a revenue number of how much of that spare capacity you would want to necessarily sell into third parties. What does that revenue opportunity potentially look like?

I'm not telling you. What I would say, let's be really, really clear, and we've been very clear with the Board and all of our shareholders. The Sofa Delivery Company is an amazing asset, and its first priority is to serve DFS and Sofology, okay? And we've got 20-odd CDC distribution centers around the country that have -- that deliver great customer service with great people, and we flex up and down throughout the year depending on the cycle of deliveries, a lot stronger in things like December, when we're pushing for guaranteed Christmas, so we can flex up. And we also have great partnerships with what we call delivery partners. So we bring them in as we get higher deliveries.

So we know what the capacity is that we've got spare. Clearly, that's a commercially sensitive conversation. So -- but we know that we -- the first priority is our own brands but then we know we've got enough capacity to deliver really well for third parties. This year is all about learning, piloting, improving the service. And going forward, as we get into this way, we will give you more numbers, and you can ask us again in September.

In a capital-light way.

In a very capital-light way.

Can I do one hopefully nice question to end on. It feels like the pace of innovation has actually increased in terms of product innovation and the collaborations you've got going on. Can we expect a similar sort of increased pace of innovation into the second half and into next year?

Yes, I think you can, [ Caroline ]. And I have to compliment the commercial teams do an amazing job. We get inundated with people wanting to work with us. And so -- and we have really, really great supplier relationships where they'll bring new innovation to us that they're seeing around the world first, and we get the first dibs of that. And every quarter, every month, we're dropping new products. There's another 9 products going into Sofology this week. So we will keep innovating. I think in the end, in the end, it is about -- this is a fashion-led business, and it's innovating and keep pushing, working with the brands. So we've had French Connection for many years but we're refreshing the products within that range all the time. We've had Joules many years but we're refreshing the products.

So we've got established propositions but within there, NPD is super important. And then we launched -- she's gone now but Amanda Holden range, and we're really excited about it. It's something very different. And so we're very careful about who we work with. But when we do, we really get behind that and try and drive a lot of NPD and awareness. So I think it's a lifeblood. It's the lifeblood of the business.

I'm getting the thumbs up, I stop all that, I don't know. But anyway, thank you very much for your attention. Thanks for attending, and nice to see you all. Okay. Thank you.

Thank you.